U.S. Stock Futures Gain After Fed, Citigroup Weigh Loss Limits

By Eric Martin

Nov. 24 (Bloomberg) -- U.S. stock futures rose on speculation the government will help Citigroup Inc. weather mortgage losses and after Democratic lawmakers pledged to agree on an economic stimulus package by January.

December futures on the Standard & Poor’s 500 Index climbed 3.3 points, or 0.4 percent, to 795.3 as of 10:08 a.m. in Tokyo. The benchmark gauge dropped 8.4 percent to 800.03 last week and closed at an 11-year low of 752.44 on Nov. 20.

Citigroup, which lost 60 percent last week to $3.77, and U.S. regulators are in talks about a plan to limit the bank’s potential losses from toxic assets, people familiar with the matter said. Futures were also boosted after Senator Charles Schumer of New York said Democrats will propose between $500 billion and $700 billion of federal stimulus.

“With Citigroup hanging in the low single digits, the market was calling for either a breakup or some kind of resolution,” said Jack Ablin, who helps manage about $60 billion as chief investment officer of Harris Private Bank in Chicago. “This is going to be the main focus of market activity. It should be good news.”

South Korea’s Kospi Index gained 0.6 percent. Japanese markets are closed for a holiday.

The S&P 500 tumbled 46 percent this year, poised for its biggest annual decline since 1931, after almost $1 trillion of bank losses shrunk the economy and corporate profits fell for five straight quarters. Concern Citigroup may need a government takeover sent bank stocks in the S&P 500 down 24 percent last week, the steepest slide in at least 19 years.

Citigroup Talks

Regulators, including the Federal Reserve and Treasury Department, were locked in discussions with Citigroup this weekend, according to three people who declined to be identified because the negotiations are confidential.

More than $7 trillion was erased this year from U.S. equity markets. Concern the recession is worsening was spurred last week after jobless claims approached the highest level since 1982, prices paid to U.S. producers plunged by the most on record and the Federal Reserve said manufacturing in the Philadelphia area shrank at the fastest pace in 18 years.

Stocks rallied Nov. 21, pushing the S&P 500 up 6.3 percent, after President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner to head the Treasury.

Geithner will be nominated Treasury secretary, and Lawrence Summers will head the National Economic Council, Democratic aides said. Summers served as President Bill Clinton’s last Treasury chief.

Stimulus Package

House Speaker Nancy Pelosi said any stimulus package must be several hundred billion dollars. “The sooner we do one, the smaller it can be,” she said on the CBS “Face the Nation” program.

The S&P 500 fetches 9.2 times analysts’ forecast for next year’s earnings, the cheapest compared with historical profits since 1998, according to data compiled by Bloomberg and S&P.

In aggregate, earnings fell 18 percent for the 479 companies in the S&P 500 that reported third-quarter results through Nov. 20, according to data compiled by Bloomberg. Companies scheduled to report this week include Campbell Soup Co., Deere & Co. and Tiffany & Co.

As Treasuries rose, the dividend yield on the S&P 500 exceeded the benchmark 10-year note’s yield for the first time since 1958. The 10-year yield declined to 3.20 percent from 3.74 percent, and touched 2.99 percent, the lowest since the government began regular issuance of the securities.

A measure of the cost of using options to insure against declines in the S&P 500 gained 9.6 percent last week and rose to a record 80.86 on Nov. 20. The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell on Nov. 21 to 72.67 as stocks climbed.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net.